Where does the market expect 10-year U.S. Treasury yields to be in a year?
Getting the direction right on interest rates is not enough to be a successful portfolio manager. In addition to direction, we must incorporate the degree of change in rates with a specific timetable. Because the yield curve is still relatively steep, short-term rates are lower than long-term rates, there is an opportunity cost for investors deciding to keep their money invested in short-term maturities. By using forward curve analysis, we can determine how much interest rates need to change before the opportunity cost is offset and a short-term investment results in a net gain to the investor. Forward curve analysis currently shows that the yield on the 10-year U.S. Treasury must rise nearly 50 basis points (+0.50%) during the next year before the investor in short-term maturities is rewarded for his or her patience. That’s not a lot of cushion for the investor in 10-year U.S. Treasuries as yields typically fluctuate with greater volatility in any given 12-month period. Still, in what
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